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December 5, 2011

Kenneth Rogoff Asks: Is Modern Capitalism Sustainable?

Harvard economics professor says there are no alternatives for now to the ‘dominant Anglo-American paradigm’

History may teach that all forms of capitalism are transitional, but the best economic system for now—in the face of no other viable alternatives—is “today’s dominant Anglo-American paradigm,” says widely quoted Harvard University economics professor Kenneth Rogoff.

The former International Monetary Fund chief economist believes that continental Europe’s brand of capitalism is generous to workers and ensures a more equal distribution of wealth, but it’s unsustainable. At the same time, Rogoff (left) questions China’s “Darwinian” capitalism, with its weak social-safety net and fierce competition among export firms, saying it’s uncertain how far China’s political and economic structures will transform themselves and whether they can ultimately serve as a role model.

“Modern-day capitalism has had an extraordinary run since the start of the Industrial Revolution two centuries ago, lifting billions of ordinary people out of abject poverty. Marxism and heavy-handed socialism have disastrous records by comparison,” writes Rogoff in a column for the Project Syndicate newspaper association.

But, he warns, as industrialization and technological progress spread to Asia and Africa, contemporary capitalism’s numerous flaws may become more apparent, including its inability to address issues such as global climate change, the growing income gap between rich and poor, medical care distribution, and financial crises and the technological innovations that have made them worse.

“Today’s capitalist systems vastly undervalue the welfare of unborn generations,” Rogoff writes. “For most of the era since the Industrial Revolution, this has not mattered, as the continuing boon of technological advance has trumped short-sighted policies. By and large, each generation has found itself significantly better off than the last. But, with the world’s population surging above seven billion, and harbingers of resource constraints becoming ever more apparent, there is no guarantee that this trajectory can be maintained."

While none of Anglo-American-style capitalism’s problems is insurmountable, the system may become a victim of its own success in producing massive wealth, he concludes: “As pollution, financial instability, health problems, and inequality continue to grow, and as political systems remain paralyzed, capitalism’s future might not seem so secure in a few decades as it seems now.”

The Dec. 2 column, which went viral on the Internet after publication, drew a large number of comments from readers, many of whom complained that the world’s problems are due not so much to economics as to politics.

“All of our problems are solvable; however, we are becoming less able to adapt to our evolving society as we become more complacent and stubborn ideologically,” writes commenter Jake Lopata. “The political system will inevitably be capitalism’s undoing.”

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